Number of the Week: Top 20% of Earners Take Home 51% of All Income

Last year, as the median U.S. household income declined, income inequality rose to its highest level in decades. The top 20% of households took in 51.1% of all income in 2011, up from 50.2% in 2010 and the highest share since at least 1967, according to the Census Bureau.

The growth at the top came at the expense of middle- and low-income earners. After the top, each quintile of income earners saw their share of income decrease, with the biggest drop among middle income earners. The middle fifth of households took in 14.3% of all income last year, the lowest since 1967 and down from 14.6% in 2010.

“Many middle class families have moved into the lower-income quintiles creating an income distribution that is less flat,” economists at IHS Global Insight wrote in a recent note to clients.

Global Insight, a Lexington, Mass. research firm, notes the aging of the population is also weighing on incomes. “As more and more of the population enters retirement, income shrinks and more households move into lower income categories,” the firm wrote. “The baby boomers, those born between 1946 and 1964, are now starting to move into retirement age. Since this is a relatively large group, there will continue to be a negative impact on median household income from this age cohort.”

Last year’s rising income inequality is a direct consequence of the recession and grudgingly slow recovery, but there is also a more pernicious set of long-term factors — such as a less-educated work force.

The short run problem is that the recession was brutal and the recovery sluggish, in particular for middle class professions like manufacturing and construction. Despite the improvement in manufacturing during the recovery — and the recent uptick in construction activity — those sectors still haven’t come close to recovering the losses they incurred during the recession. Meantime, workers in the highest-paying jobs haven’t come under the same type of pressure.

Also, no matter what sector they work in, when people who’ve lost jobs are re-hired in another industry it often takes a while for them to get back to their old salary.

“When they transition to some other sector they can’t draw on their 10 or 15 years of experience — they have to start over,” said Michael Greenstone, an economist professor at the Massachusetts Institute of Technology.

But while the recession was tough, the inequality problem is also a longer term issue that stems from a rapidly changing economy that is played on a global stage and puts more stock into education. Median earnings for full-time male workers, for instance, were $48,202 in 2011, less than in the 1970s on an inflation adjusted basis. That decline that has been particularly acute for men who didn’t go to college, Mr. Greenstone notes.

“Many Americans are competing with a hammer when they should be competing with a semiconductor,” he says.

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